Classification of mining permits as real property for tax purposes

Clause 123(35)

Issue: Whether the amendment creates uncertainty

Submission

(PricewaterhouseCoopers)

Including mining permits in a definition of “real property” in the Income Tax Act 2007 may result in unforeseen ambiguity. It raises the question of whether mining permits are akin to other forms of real property and, in particular, akin to land. For example, section CT 7 of the Income Tax Act 2007 defines a “petroleum mining asset” as including a petroleum permit, but excluding “land”.

One solution is to limit the extended definition of “real property” (which includes mining permits) to the application of New Zealand’s double tax agreements (DTAs).

Comment

The amendment changes the definition of “real property”, which is a different definition (and concept) from “land” (although land is a subset of real property).

There should be no ambiguity with respect to the definition of “petroleum mining asset” in section CT 7 because the term “real property” is not used in that section; the relevant term used is “land” (the definition of which does not refer to “real property”). Accordingly, the proposed amendment has no legislative effect on section CT 7. Additionally, CT 7 is very explicit about how “petroleum mining asset” is defined – that is, petroleum mining assets include a “petroleum permit” (which is one kind of real property), but does not include “land” (which is another kind of real property). So the proposed change is not inconsistent with the definition in section CT 7.

Limiting application of the amended definition to the application of New Zealand’s DTAs would mean that the amendment does not adequately address the problem identified because New Zealand’s DTAs refer to domestic law definitions to determine source-country taxing rights. Therefore, the definition would be somewhat circular (and potentially ambiguous) if the domestic law definition was only for the purpose of DTAs.

Recommendation

That the submission be declined.

Issue: Classification of mining permits as real property for goods and services tax purposes

Submission

(New Zealand Institute of Chartered Accountants)

Consideration should be given to introducing a similar clarification to the definition of “land” for GST purposes.

Comment

The amendment is to the definition of “real property”, which is a different definition (and concept) from “land”. In addition, the change to the definition of “real property” is for income tax purposes and the policy rationale does not necessarily translate to goods and services tax where “land” has a meaning tailored to that tax type.

Officials will further consider and engage with the submitter on this issue.

Recommendation

That the submission be declined.